If a proposed investment fund created by the sale of Aurora Energy had already been operational, the rate increase this year would have been 5.2%, not 17.5%, a recently departed board member of Dunedin City Holdings Ltd (DCHL) has said.

Richard Thomson, who stepped down from the DCHL board last month, said if Dunedin City Council wanted to ease the financial burden on ratepayers, selling Aurora and establishing an investment fund could help achieve that in both the short and long term.

The council’s budgets showed that the total fare revenue the council needed would increase by $35.6 million next year, an increase of 17.5% on this year.

A $500 million diversified investment fund, which could realistically be created by selling the electricity distribution business, could provide a $25 million payout next year to cover tariff requirements, Mr Thomson said.

At the same time, 3% of the fund’s profits could be pumped back into the fund to ensure the fund does not lag behind inflation, he said.

According to Thomson, Aurora was expected to pay a dividend over the next two years, “but it’s absolutely not comparable to that amount.”

The board is considering selling Aurora and using the proceeds to pay down the company’s debt, which is expected to reach $576 million by the middle of next year. The board also wants to set up an investment fund to generate income for the board.

The proposal has been largely criticized by the public.

Mr Thomson, who was also once a Dunedin city councillor, said the scale of the opposition had surprised him but the general sentiment had not.

“People have some big misunderstandings about what a regulated company (like Aurora) can and cannot do,” he said.

“And I think the other reason is that people don’t like to sell the family silver.

“I would say that you don’t sell the family silver, but that you exchange one asset for another.

“You have to look at: ‘what does Dunedin need?’

“If you were to sell it and want to spend it on three more stadiums, I don’t know, I would be among the opponents, but that’s not what’s happening.”

An investment fund would outperform Aurora over the next 10 years.

But in the long run it would also surpass Aurora, he said.

Most railway companies had to reinvest heavily in their networks, not because they were in decline, but because they were growth assets.

“These are assets that you should keep investing money in.

“And because of that they increase in value, but the only way to profit from that value is to sell it and put the value in the bank… or to borrow money against the value and pay out dividends.”

It was no different with Aurora.

“I think there is a misconception that all the investments Aurora is making are just a catch-up.

“That has largely happened.

“This is really the ‘new normal’ because of the developments in Central Otago, with the increased electrification. You just see that there is a huge amount of capital that needs to be put into developing those networks.

“It is unlikely that Aurora, without really significant additional borrowing, could generate dividends of the same size (as a fund).”

Andrew Simms, chairman of the Mosgiel-Taieri Community Board, is among those warning against the sale of Aurora.

Mr Simms said yesterday that this option should be seen as a “last resort”.

There are other things the council needs to do at this time, including restructuring and ending expenditure that is beyond its resources, he said.

Selling Aurora and getting rid of its debt would give the council the “space” it needs to borrow hundreds of millions of dollars more, he said.

Moreover, the proposed sale postponed tackling the city’s “real problems.”

“What we really need to be concerned about is that the sale of Aurora also postpones the need to restructure the DCC and restructure the DCHL so that it stays within its budget.

“That worries me a lot, and I think it worries a lot of taxpayers as well.

“I think a lot of taxpayers are concerned that DCC and DCHL are living beyond their means. Selling off their key assets, like Aurora, only postpones the need to actually address the real issues we face as a city.

“That means we still spend more money than we earn.”

Mr Simms said there were concerns that the people pushing for the sale “are the people who got us to where we are and who have a real interest in avoiding a restructuring which I believe is inevitable”.

Selling Aurora should be the “absolute last resort” when all else has failed.

“It’s like selling your house.

“There may come a time when you need to sell your home to pay off your debts, but that is absolutely the very last resort.”

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